Determining the expected dividends of firm, Accounting Basics

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Determining the expected dividends of firm

Problem:

You are considering the purchase of Wahoo, Inc. The firm just paid a dividend of $4.20 per share. The stock is selling for $115 per share. Security analysts agree with top management in projecting steady growth of 12% in dividends and earnings over the foreseeable future. Your required rate of return for stocks of this type is 17.5%.

Requirement:

Question: If you were to purchase and hold the stock for three years, what would the expected dividends be worth today?

$12.60
$9.21
$17.12
$15.55
$11.46

Note: Show all workings.

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